The eurozone has stood up. One is entitled to adapt a quotation of Chairman Mao on this occasion, since last weekend has seen the People's Republic of China playing a major role in the ongoing bail-out of the American investment banking industry. But even more significant was that it has also seen the clearest demonstration by the states participating in the European single currency that their response to the current crisis will be to deepen yet further their economic coordination and integration.

The line has been drawn under last week's unfortunate "go it alone" initiatives started by Ireland and given weight by Germany. In the new committee of the president of the European Union, the president of the commission, the chairman of the eurozone and the governor of the European Central Bank, we have the start of an institutional framework for the political governance of the eurozone. In the structures to guarantee inter–bank lending, although the funding remains at national level, we have the first steps towards true transnational burden sharing. In the announcement of the taxpayers funds to support banks in difficulties, we have the beginnings of a common fiscal regime. When all this is taken together with the European Central Bank's capacity to cut interest rates, which is now far greater than that of either the Federal Reserve or of the Bank of England, we have the makings of a fundamental shift in the economic leadership of the west from America to Europe.

Undoubtedly, the UK Treasury deserves considerable credit for having established the policy principles for dealing with this crisis, which have now been adopted by the governments of the eurozone. But then, it had to. Britain's banking system, because it has mirrored more closely American rather than continental European practice, has faced far deeper problems than the financial institutions of the eurozone, with the possible exception of those of Ireland. The continental European perception, which has so outraged British Eurosceptics, that this crisis has been fundamentally made in America, and constitutes the comprehensive defeat of the highly leveraged Anglo-Saxon banking model, remains entirely valid.

Central to the Eurosceptics' criticism has been their claim, as argued by Simon Tilford and Philip Whyte in the Guardian, that the widening of the spreads between, for example, the yield on German and Greek government bonds, suggests that the euro is about to fall apart under the pressure of profound intra-member state macroeconomic imbalances. This is based on the assumption that Portugal, Italy, Greece or Spain, the much derided "Pigs", would be far better off with their own currency, which they could devalue in order to restore external competitiveness. But if anything has been demonstrated by the recent market turmoil, it is the paramount importance of credit-worthiness. The yield spreads on government borrowing of countries which cannot print their way out of their obligations to their creditors, is the surest guarantee that ultimately fiscal disciplines will prevail.

No such certainty is available for those whom the British government will be wishing to entice into gilts in order to fund a banking bail-out, which, in terms of percentage GDP, far exceeds anything being undertaken in the eurozone, including Ireland. Moreover, we are already seeing the impact of sterling's devaluation against the dollar on our import prices. Once global price stability is restored, the inflation restraint upon the UK economy is likely, once again, to become acute, since the rise of Asia is now structurally inflationary. If, on the other hand, we face a prolonged global recession, substantial enough to blunt these price pressures, fiscal contraction will make the burden of funding government debt intolerable. The eurozone allows its members, even its weakest ones, to substantially evade this most painful dilemma.

It would be difficult to imagine a more favourable environment, both from the point of view of high and low politics, in which to relaunch the campaign for Britain's full commitment to the European Union, including joining the single currency. The high politics are that the west must now find much greater unity of purpose if it is to preserve its values in the face of what has been a massive loss of leadership and power to Asia and, in particular, to China.

A powerful, united and prosperous Europe is now the key to the continuing strength of western values. One that will be able to forge a partnership of equals across the Atlantic and rally into its sphere of influence the remainder of the former Soviet Union, the Middle East and north Africa. But such a grand and generous ambition will only be possible if Britain is fully engaged in the European project. No European country has a greater understanding of the Atlantic dimension of European civilisation. No European country is more experienced in a global role. It is no exaggeration to say that if Britain becomes committed to the promotion of genuine international democracy which the European model represents, then it will still be possible to be optimistic about the eventual triumph of liberalism and individualism.

Then there are the low politics, which have already been signalled, almost too perfectly, by the return of Peter Mandelson to the cabinet. The chancellor's statement in the House of Commons yesterday, in which he vindicated Gordon Brown's almost honorary membership of the Councils of the eurozone, and his assessment that the weekend's events had reinforced the importance of Britain's membership of the European Union, are the first expressions of a new strategy. Europe is once again becoming the Conservative party's Achilles heel.

With a prospective Obama presidency abandoning the notion that Britain should choose America rather than Europe, the proposition which was the neocon lifeblood of Tory Euroscepticism, with the British public generally blaming America for the coming recession and with the whole ideological climate having shifted sharply from right to left, Cameron faces an impossible task. No amount of abandoning not just his tie, but also his business suit and sounding like a Marxist in relation to City bonuses can draw the poison against Europe, which now infects every level of his party. The more Gordon Brown plays the European card over the coming months, the more certain he can be of transforming the turnaround of the past fortnight into a platform for another election victory, or at the very least, a hung parliament. Europe should be the new axis which would make an eventual cooperation with the Liberal Democrats possible, perhaps at last, even to the extent of a new progressive coalition.

Of course, there are still severe challenges ahead. Brown remains a deeply compromised figure as a credible pro-European and he cannot escape the blame for a severe recession, which is now unavoidable. There is also the nagging concern that the possibility of Scottish independence will undermine our image amongst global investors of absolute constitutional stability and thus threaten our capacity to fund the bail-out of our financial system and counter the cyclical deterioration of our public finances.

It could also undermine the peace process in Northern Ireland, a prospect rendered more dangerous by the deep dysfunction of politics in the Republic, as expressed by the no vote on the Lisbon treaty. This puts into even sharper relief Cameron and Hague's determination to oppose its ratification to the limit. There is also the marked trend in today's Conservative party, as it is forced away from its traditional pro-American stance, to anchor its continued hostility to Europe in a narrow English nationalism; one which the pressures of recession could drive towards extremist attitudes on issues such as immigration and welfare.

Nevertheless, a closer commitment to Europe could sustain the union and the peace settlement in Ulster and create a framework for a new economic policy, including eventual membership of the euro that would offer the best prospect of an early recovery in growth. In any event, Europe, the great sleeping issue of British politics, which has destroyed, in one way or another, every government since Suez, is once more at the centre of our political debate.